Case Analysis
4357
OCTOBER 24, 2011
CHRISTOPHER A. BARTLETT ARAR HAN
Levendary Café: The China Challenge
Levendary Café was spun out from private equity ownership in January 2011, and the following month, Mia Foster was named as its new CEO. The departing CEO, Howard Leventhal, was the beloved founder of the popular chain of 3,500 cafés. He had grown a small Denver soup, salad, and sandwich restaurant into a $10 billion business, but after 32 years was moving on to new interests. This was Foster’s first job as CEO. Previously, the 47-year-old had been president of the U.S. business of a large American fast food company for seven years. She had started her career at a major global accounting firm, leaving to earn an MBA from Wharton. Upon graduation, she had become a consultant at McKinsey before taking a job in product management at P&G, where she worked her way up the ranks. Foster was known for her frank communication style and strong execution. In spite of the promise held by the Levendary brand and Foster’s strong track record, Wall Street was cautious about the stock. While the company’s fundamentals were strong and its performance generally in line with management forecasts, its shares traded at a discount to comparable restaurant stocks. There were two reasons for this. First, analysts were concerned that Levendary’s domestic business was nearly tapped out. Second, given Foster's lack of previous international management experience, they were skeptical of her ability to build a multi-national brand. Foster felt challenged by Wall Street’s skepticism and wanted to address it head-on. In particular, she knew that Levendary’s recent entry into the fast-growing China market would be closely watched. So she was concerned by reports that recently opened China locations incorporated some dramatic departures from Levendary’s U.S. concept, particularly in store design and menu selection. She was also frustrated by the apparent unwillingness of Louis Chen, Leventhal’s
OCTOBER 24, 2011
CHRISTOPHER A. BARTLETT ARAR HAN
Levendary Café: The China Challenge
Levendary Café was spun out from private equity ownership in January 2011, and the following month, Mia Foster was named as its new CEO. The departing CEO, Howard Leventhal, was the beloved founder of the popular chain of 3,500 cafés. He had grown a small Denver soup, salad, and sandwich restaurant into a $10 billion business, but after 32 years was moving on to new interests. This was Foster’s first job as CEO. Previously, the 47-year-old had been president of the U.S. business of a large American fast food company for seven years. She had started her career at a major global accounting firm, leaving to earn an MBA from Wharton. Upon graduation, she had become a consultant at McKinsey before taking a job in product management at P&G, where she worked her way up the ranks. Foster was known for her frank communication style and strong execution. In spite of the promise held by the Levendary brand and Foster’s strong track record, Wall Street was cautious about the stock. While the company’s fundamentals were strong and its performance generally in line with management forecasts, its shares traded at a discount to comparable restaurant stocks. There were two reasons for this. First, analysts were concerned that Levendary’s domestic business was nearly tapped out. Second, given Foster's lack of previous international management experience, they were skeptical of her ability to build a multi-national brand. Foster felt challenged by Wall Street’s skepticism and wanted to address it head-on. In particular, she knew that Levendary’s recent entry into the fast-growing China market would be closely watched. So she was concerned by reports that recently opened China locations incorporated some dramatic departures from Levendary’s U.S. concept, particularly in store design and menu selection. She was also frustrated by the apparent unwillingness of Louis Chen, Leventhal’s